Draxis reports production issues corrected, but not without impacting first quarter results

By Jennifer Lanning Drey

Eugene, Ore., May 11 - Draxis Health Inc. said reduced production in the sterile products area of its contract manufacturing segment in the early part of the first quarter was the primary cause for its decrease in net income from the comparable quarter of 2005.

Draxis reported net income of $1.7 million in the first quarter, which was down from $3.3 million in the same period last year. Basic and diluted earnings per share were 4 cents for the first quarter, down 4 cents per share compared to the first three months of 2005.

Net cash flows from operating activities increased substantially to $3.1 million for the first quarter, up 92% compared to $1.6 million for the same period in 2005. Operating cash flows in the fourth quarter of 2005 were $6 million.

By mid-quarter, the company's production issues were behind it, "but not without some impact," said Dr. Martin Barkin, president and chief executive officer of Draxis, in company conference call held Thursday.

The decrease in production of sterile products, particularly Hectorol Injection, was the result of a routine maintenance shutdown that lasted longer than expected last year, and it took the company until March to resume normal production levels, according to company press releases.

Draxis said that although the production of its lyophilized products increased significantly during the quarter, it was not enough to fully offset the decrease in other products.

"While our first quarter came in below the strong first quarter of 2005, the results show growth and improvement coming out of the challenging period during and shortly after the shutdown in late 2005," said Barkin in a company news release.

"Our operational results are now trending back towards the performance we saw during the first half of 2005. In addition, operating cash flow levels continue to be robust and cash on hand is at levels unprecedented in the company's recent history."

Radiopharmaceuticals up 10%

Draxis' radiopharmaceuticals division, Draximage, logged product sales of $4.9 million and saw a 10% increase in business during the first quarter, as compared to the corresponding period in 2005, excluding brachytherapy products, which it stopped selling in late 2005, according to the release.

"On the radiopharmaceutical side, Draximage had a good quarter with continued strength in the iodine I131 market, particularly in the United States," said Barkin, during Thursday's conference call.

Draximage received approval from the Food and Drug Administration in January for its supplemental new drug application for sodium iodide I131 capsules, which are intended to be used by physicians to perform the radioactive iodide uptake test to evaluate thyroid function prior to treatment with stronger therapeutic doses of sodium iodide I131, according to a company news release.

Earlier in the quarter, Draxis also announced that its radiopharmaceutical business had realigned its priorities to focus research and development efforts on new radiopharmaceutical products that can drive future growth. In line with that goal, Barkin named Sestamibi, an injectable pharmaceutical product used to capture images of the heart during cardiac stress tests, as a key radiopharmaceutical project for the Draximage division.

"We plan to be in position to enter this segment with our own version and be a key player in cardiac imaging," said Barkin during the conference call.

The company is also working to produce and distribute a "next-generation" Technetium Generator, a type of generator used by radiopharmacies that Draxis said has a world-wide market.

"Both of these recently announced major product opportunities are high priorities for the Draximage division," said Barkin in the release.

Mississauga, Ont., Draxis Health, through its wholly owned operating subsidiary, Draxis Specialty Pharmaceuticals Inc., provides sterile products, non-sterile products and radiopharmaceuticals.

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